The Seven Deadly Sins of Dr Cullen's scheme

National Finance Spokesman Bill English takes a look at the background to todays decision.

Tuesday, July 17th 2001, 6:06PM

1.
It will degrade health and other essential social services

Dr Cullen says partially prefunding superannuation
is the best use of over $2 billion dollars a year for each of
the next 25 years. In the meantime, he cut health and education
spending in this year's Budget because the Government was cash-strapped
- despite favourable conditions for exporters. Over the next
25 years the $100 billion earmarked for the fund will take money
away from areas such as health and education. That means people,
including the current elderly population, will get worse health
services. We say that's wrong.

2. It will lock New Zealand onto a
low growth path

The superfund locks New Zealand into a
low growth path. Even Treasury has predicted average annual growth
of just 2.2% between 2006 and 2011. That is a dismally low growth
rate, when many experts are picking we should be achieving between
5 and 7 percent growth if we wish to avoid falling further behind
other countries. It will mean our living standards will fall
compared to the rest of the world. This problem will be exacerbated
by the fact future government's will have their hands tied by
their financial commitment to the fund, so they will not be able
to use tools such as investment in tertiary education or tax
cuts to stimulate the economy. Labour knew there were other options
for $2 billion per year, but never asked for advice on this from
Treasury or anyone else. We say New Zealanders need to weigh
up the options and decide for themselves.

3. It is not sensible to borrow in
order to save

Treasury has confirmed that most of the
money put into the super fund over the next five years will be
borrowed. Treasury has also confirmed that borrowing to save
is not a sensible practise. Our national debt is projected to
rise over the next five years - after having decreased every
year for nearly a decade. And all to put money into a savings
account.
Common sense tells you it's just as silly for the Government
to borrow to save as it is for a household. We say borrowing
to save makes no sense.

4. It exports New Zealand's capital
to the world

This fund will grow to around $100 billion
- or around half the size of the whole economy. 80-90% of these
funds will be invested in sharemarkets offshore, not in New Zealand.
New Zealand will be exporting its investment capital to the rest
of the world, rather than investing in New Zealand. We say that
will do nothing to encourage jobs, wealth or growth within New
Zealand.

5. It provides just a fraction of the
money required.

Most people understand that the fund will
only partially meet the future costs of universal superannuation.
However, few understand just how partial 'partial' actually is!
At its peak level, the fund will contribute 14% of the costs
of superannuation. Over the life of the fund, it will contribute
an average of just 10% of the costs in any year. That means on
average 90% of the future costs of superannuation will come from
taxes collected on the day.

6. The numbers Dr Cullen bases his
scheme on are not credible

This year's Budget highlighted the continued
tightening of the fiscal position. Despite the supposedly strong
economy, the Government had to wipe $1.8 billion worth of surpluses
out of its forecasts over the next three years - mostly from
lower tax revenue. The Government's low growth path is already
impacting on the fiscal outlook - and this will only get worse
from here. This raises serious doubts about the whole fiscal
outlook.
National is becoming increasingly concerned about the state of
the nation's finances we will inherit when next in Government.

7. The scheme is politically driven

Dr Cullen will stamp his feet and posture
endlessly over our decision not to back his scheme. But this
is a complex issue and it is our sincere belief that the proposed
scheme is a simplistic attempt - designed to create the impression
that he has 'solved' a 'problem'. His approach, as the above
points demonstrate, is not durable, not realistic and exacts
too high a price on the next two generations for too little reward.
The scheme he cobbled together courtesy of a backroom deal with
New Zealand First, isn't about the elderly in the mid-21st Century.
It is about Labour's political needs now. National will present
a sensible, realistic and durable alternative.